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Medium Profitability Growth Strategy Pricing Strategy

American Airlines

#Aviation #Airlines #Transportation
ProHub Comment

This is a qualitative growth strategy case focusing on revenue optimization rather than cost cutting. The case uses limited quantitative data (primarily Exhibit 4's price elasticity analysis) and encourages candidates to generate multiple strategic options by analyzing four exhibits showing customer preferences, seasonality patterns, price sensitivity, and pricing elasticity.

Estimated Time 15 minutes
Difficulty Medium
Source Cornell
50 / 100
Your client is American Airlines. As you may know, competition is fierce among the major airlines, with prices being driven steadily downward. After a year of weaker than average growth, they have hired our firm to devise a set of strategies for growth.

Clarifying Information

  1. Pricing handled by computer system – currently based on class of seat (first, business, economy class) and time to flight – all inclusive in ticket price
  2. Market highly fragmented overall as there are over ten competitors in the market, each of which holds a relatively small share (no dominant player)
  3. However, many routes are only served by 1 – 2 companies
  4. There are two major segments in the air transportation market: vacationers and business travelers.
  5. Business travelers make up a slight majority of business class seats and a vast majority of first class seats. Essentially all economy class seats are taken by vacationers.
  6. For Exhibit 4, assume the variable cost with filling a seat is negligible